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IPO

Why are Your Shares not Traded, Yet?

Acquiring supplemental capital without to need for paying interest rates to the bank, more freedom in using the entrusted money, but also the interest of the media and growing publicity. The Prague Stock Exchange offers all that to the domestic joint stock companies. The dynamically developing market has been attracting more and more investors. For many companies, their capital is the reason for considering entering the market.
The option of listing the shares at the Exchange is not only increasingly attractive for companies seeking financial resources, but also increasingly simple, especially over the last few years. In its effort to support the domestic capital market, the Prague Stock Exchange provides maximum support to the potential issuers. The current legislation also does not represent any obstacles.

And what can the Prague Stock Exchange bring to those companies that decide to list their shares?

Interest-free capital

Entering the capital market is a step toward a large number of potential investors. That provides the option of acquiring a large sum of money, that, for instance, one bank would not be able or willing to provide. Moreover, when issuing shares, the issuer acquires cash for an indefinite time, without the need to pay loans or interest rates.

Optimisation of the capital structure

The option of optimising the capital structure between debt and net worth. By issuing shares, the issuer increases its net worth.

The freedom of using the acquired capital

Capital acquired through an issue of shares gives the company more freedom in using it, which is a major advantage as opposed to limitations that are frequently linked to credit financing.

Increased trustworthiness of the company

With respect to the requirements of the capital market, the business activities of the companies who issued their shares are much more transparent and therefore more trustworthy for the investors.

Publicity

Admission of an issue for trading in the regulated market is linked to significant publicity, which has a favourable effect on the overall awareness of the company, its reputation and trustworthiness.

Prestige

Being admitted to the Exchange is an indication of the company’s success.

What Does the IPO Abbreviation Mean?

IPO (Initial Public Offering) is a commonly used term for the primary public offering of shares related to an entry to the stock market.
It represents an entry of a company to the Exchange, thanks to which the shares of the company will be traded on the securities market. The reason for realising an IPO may be increase of capital, sales of part of the shares held by the original owners, or, and most frequently, a combination of both the above processes. Investors get a guarantee of liquidity of the invested resources because the publicly traded securities are easily and quickly negotiable at the Exchange.

Why Should a Company Issue Shares?

The ability to acquire financial resources is, aside from the actual business plan, a precondition for successful business undertaking. Thanks to sufficient capital, a company may successfully implement its goals and react to emerging business opportunities as well as the competitor’s activities.
Companies, however, also pay their dues for opportunities brought on by the growing globalization of business undertakings. The dues are in the form of ever growing demands on survival amongst the competition of multinational entities with strong capital. For medium sized and larger companies, optimisation of their capital expenditures is a necessity. Such optimisation is carried out by suitable combination of debt financing and financing through shares. The most frequent form of acquiring share capital is an issue of shares.

Why Have an Issue Admitted to the Exchange?

  • Easier underwriting
    Investors are also more interested in such securities that are listed on the regulated official market. Problem-free tradability and transparency are more probable. The attractiveness is increased by strong liquidity of such securities.
  • Value of shares stemming from the investor’s trust
    The actual price of the company based on the evaluation of the analysts, the opinion of the traders and the development of the market conditions, gives the investors immediate information about the value of their share and the option of potential sale of the shares.
  • Increased prestige and good reputation of the company
    By entering the Exchange, the company agrees to extended information disclosure toward the investor public. The information on the issuer is widely accessible and continually evaluated by the capital market analysts. The company also becomes more trustworthy in the eyes of the suppliers as well as consumers.
  • Easier access to bank loans
    The company that regularly provides information about itself and whose financial health and prospectives are evaluated by the market, enjoys easier access to other sources of financing. Such a transparent client usually gets better credit scoring and higher rating from banking institutions.
  • Increased value for employees
    Entering the Exchange enables the management and the employees of the company to participate in future growth. That increases their involvement in the company and their willingness to participate in the future development of the company. Employee shares may serve as tax-effective, modern and stabilising motivational element in employee remuneration.

Why the Prague Stock Exchange?

  • The Prague Stock Exchange is a respected market and the securities traded at its official market may also be purchased for the portfolio of more strictly regulated institutional investors. Since 2004, the Prague Stock Exchange has been the holder of the “Designated Offshore Market” status, which is a designation of the U.S. Securities Commission, confirming to U.S. investors that this is a transparent and safe market. As of 2009 PSE is part of the CEE Stock Exchange Group (CEESEG), which includes the stock exchanges of Budapest, Ljubljana, Prague and Vienna.
  • Domestic institutional investors have strong interest in new issues for the purposes of extending their portfolio while maintaining the share of investment on the domestic market.
  • Admission of a new issue is linked to significant media attention. New issuers and their further activities are given significant publicity, which makes them more visible on the Czech market.
  • We can expect openness and assistance of the involved bodies, because there is general interest in activating the market and strengthening the Exchange's position.
  • The Exchange implemented a very friendly fee policy and completely cancelled fees for admitting the shares on the market.

What Makes a Company Eligible for Successful Admission to the Exchange?

With respect to the fact that the basis for successful underwriting is sufficient interest of the investors, the issuer needs to attract them and make sure that their investment will increase its value. Among the preconditions that a company interested in an IPO should meet, are above all the readiness to share information, a transparent company structure and financial flow. The company should also be under the leadership of professional management with clearly defined plans and goals. The last of the necessary preconditions are sufficient size of the company’s turnover and its readiness to switch to international accounting standards.

What is the Issue Process?

The period between the initial decision of the statutory body and the introduction to the market varies, because it depends on the readiness of the issuer, the experience of the consultants and the issue arranger, but also the optimum date for entering the market. In most cases, this takes about six months.

How Much Will the Entire Issue Cost?

The cost of the primary issue of the shares, including their listing on the regulated market, corresponds to several per cent from the volume of the issue. The most significant part of the fee is the fee for the issue manager and another inseparable part represents the cost of legal consultation. Fees to the Czech National Bank, the Central Depository and the Prague Stock Exchange represent only a negligible part of the costs.

Primary Issue and Admission to the Market Step by Step

Select experienced consultants. The issue manager, usually a strong investment bank, is of particular importance. The manager provides for preparation and coordination of the issue, including marketing activities. The legal consultants take care of the legal framework of the process, monitor the communication with the investors and make sure the risk of legal disputes is prevented.

  • If you want to use the issue to increase the registered capital, do not forget that such increase has to be decided upon by the General Meeting of the company.
  • To offer the issued shares to the public, the so called prospectus of the security has to be prepared. Such document which is a combination of the legal description of the issue and introduction of the company to potential investors, is part of the work of the legal investors.
  • A prospectus that is missing data, such as the price or specific date, is known as the “preliminary prospectus” and is subject to approval of the Czech National Bank.
    Using the so called “road show”, the issue manager introduces the preliminary prospectus to the professional public and tests it to see if the market would be interested in the issue.
  • In the so called “bookbuilding” process, investors send purchase orders that are used by the issue manager to identify the issue price and the volume of the issue.
  • Based on the public offering, the underwriting is realised by making an entry in the subscriber list.
  • One of the last steps is admission of the security to the market. It is decided upon by the Exchange based on your application.

Do you want to know more about IPO?

PSE prepared an IPO brochure IPO: A New Chapter in Your Success, its electronic version you may find here.
More information about the primary issues including contacts, as well as information about the Prague Stock Exchange can be obtained at info@pse.cz.